The “Great
Recession” has affected everyone by reminding us that managing our personal
finances is a full-time job. Priorities
have had to change. New directions must
be considered, but the one fact that cannot be ignored is that saving money is
the only prudent path to establishing financial security in an ever-changing
marketplace.

Why is saving money so important? The good news is that we are living
longer. The bad news is that Social
Security and Medicare will never provide the necessary funds for an adequate
lifestyle over an extended period of time. We will need to supplement both of these government programs with income
from other sources, hopefully, from an investment portfolio that we have
accumulated over time. The compounding
effect is there to help us month-after-month, but we must start the process at
some point. It is never too late or too
early to begin saving for one’s future. The process can be as easy as “1-2-3”.

Step 1: Review past spending behavior You cannot change your present
situation until you understand how you got there. Start by analyzing the previous six months of
income and expenses. Segregate check
expenditures into categories like housing, clothing, medical, automobiles,
insurance, food and entertainment, and “electronics”. The latter item is the newest “black hole” in
family economics. Include cable,
Internet and all telephone usage under this column. You will also need the
details for electronic debits to your bank account, as well as posting each
item on a credit card account, to arrive at “usable” information. Your monthly “net” income may be negative if
you have been funding your lifestyle with debt. Debt includes student loans, credit cards,
auto loans, and mortgages. Do you know
how much in interest charges that you are incurring each month?

Step 2: Prepare a financial budget to guide future performanceYour objective now is to get control of your finances, based on modifying
your previous behavior and living according to a new financial budget going
forward. This process will help you
accumulate money for savings, improve your credit
rating and live within your means.
Start by calculating your average monthly spend rate for each of your
selected categories and arrange the categories from highest to lowest. Next, take your average monthly income and
deduct 10% to 15%, depending on your savings preference. You may reduce these amounts by any savings
plan contributions that you make at work, but the “net” income figure becomes
your expense budget going forward. If your monthly expenses exceed this
figure, then you have some work to do.
If you have credit card accounts, think like a businessman. Banks offer a range
of merchant account fees on the selling side, but they also offer many
options on the buying side of the equation, as well. There are many sites on the Internet that can
help you here. Your largest discretionary
item may be “Food and Entertainment”. Cutbacks may be required here and elsewhere, but there is no “gain”
without some “pain”.

Step 3: Monitor
spending patterns and prepare for investingInvesting only begins after
paying down or re-financing high-interest debt and establishing an adequate
emergency fund of three to six months of net income. After you make an investment, the last thing
you want to do is to sell it at the wrong time to fund an immediate cash need. In the meantime, get educated in the art of
investing by attending a workshop or class on the topic. Planning and preparation are key factors to
acquire before putting your personal funds at risk in the market.

It is
never too late or too early to start saving for the future. The process starts with a review of your
present situation and ends with peace of mind. It’s time to get started. Good luck!

BIO: Tom Cleveland has had an
extensive career in the international payments industry, spanning over three
decades. Tom writes articles that offer helpful insights related to both business and investment
management strategies.

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about tightwad

Mother of eight year old twins, trying my best to live green, watch my pennies, get some exercise and keep things simple. I love to write, consumer advocacy and turning daily chaos into something manageable. Fresh coffee, the smell of tomatoes on the vine, lounging on the porch with a great book and contented children make me happy.

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